Sir John Major has warned that a Franco-German plan to introduce a financial transaction tax across Europe was akin to directing a "heat-seeking missile" at the City of London.

Hours after David Cameron failed to persuade Angela Merkel to drop the idea of such a "Tobin tax" in the EU, the former prime minister highlighted deep British unease over the issue by accusing Paris and Berlin of fanning the flames of Euroscepticism.

Major's intervention came as the prime minister visited Brussels and Berlin to discuss German plans for a revision of the Lisbon treaty to provide a legal basis for tough new fiscal rules for the eurozone. Britain would accept the treaty changes, which would only apply to the 17 members of the eurozone, if it wins assurances that the City of London would not be harmed.

Major, who is careful to make public interventions that are helpful to the prime minister, told Sir David Frost on Al-Jazeera English that the UK would fight hard to resist a Tobin tax. While this would be decided separately from the treaty negotiations, Britain could withhold support if its concerns about the tax are not met.

Major said: "The proposal at the moment for a financial transaction tax is a heat-seeking missile proposed in continental Europe aimed at the City of London. If there were such a tax about 80%, 85% of the yield would come from the City of London.

"Now it is not surprising that the British are upset, if we were proposing [taxes] on luxuries like wine I dare say some of our continental partners would think we were being rather unfair to them. Well that's the position for us. We can't accept a financial transaction tax. I don't think we will have to, but the proposal adds to Euroscepticism and yet in many ways it's a paper tiger."

Major's interview was broadcast after Merkel told Cameron in Berlin that France and Germany want to press ahead with a Tobin tax (also called the Robin Hood Tax) as one way of helping to deal with the sovereign debt crisis in the EU. Britain would back such a tax in the unlikely event it applied globally. But George Osborne warned fellow EU finance ministers that a unilateral move would drive business to Asia and the US.

Britain would be able to veto the introduction of the tax in the EU because all taxation matters have to be agreed by all 27 members of the EU. But France and Germany would be able to use what are known as "enhanced co-operation" powers under the Lisbon treaty to introduce the tax in the 17 members of the eurozone. Britain objects to this because the tax – 0.1% on stock and bond trades and 0.01% on derivatives – could still apply in the City. The European Commission has proposed it should be levied on any bank registered where the tax applies. This means that any transactions of German-registered banks in the City would be subject to the tax.

Merkel highlighted the differences with Cameron when she said in Berlin: "We are at one saying that a global financial transaction tax would be implemented by both countries immediately. But just a European one, we did not make any progress. We have to both work on where we feel change is needed."

Cameron said: "The danger, we have always believed, is driving transactions to a jurisdiction where it wouldn't be applied. So a global tax would be a good thing, but in Britain also we have put in place stamp duty on share transactions, a bank levy. We believe we are asking the financial services to make a fair and proper contribution to rebuilding our economy, to bring down our debts and our deficits. I think it is right in all countries to make sure that they do that."

German and British sources stressed that Merkel and Cameron, who enjoy warm relations, held a constructive meeting. The prime minister is understood to have made clear to Merkel that Britain's concerns go beyond the Tobin tax amid fears greater fiscal co-ordination among the eurozone could change the single market. Downing Street is warning that it will oppose any moves towards "caucusing" among the 17 eurozone countries in which they agree a position on financial services and impose it on the rest of the EU.

Merkel made clear in their discussions that she will give no ground on a key British recommendation – that the European Central Bank should act as the "lender of last resort" for the eurozone. Germany underlined its impatience with Britain when Wolfgang Schäuble, the finance minister, said that all EU members would eventually join the single currency. "This may happen more quickly than some people in the British Isles believe," he said.

Cameron received a mild boost on his first stop in Brussels when Herman Van Rompuy, the president of the European Council, told him that Germany has failed to persuade some members of the eurozone to agree to treaty change. Enda Kenny, the Irish prime minister, has told Merkel he would probably have to hold a referendum because German plans to give EU institutions, rather than member states, the final say over imposing penalties is seen as a major transfer of powers.

"The treaty change may be narrow but it will be deep for the 17 members of the eurozone," one British source said. "If Angela Merkel wants to transfer significant sovereignty to Brussels she has to ask whether the technocratic governments in Italy and Greece will get that through their parliaments."